feature

Financial institutions ‘playing CSR catch-up’

December 2012

In the second CSR Breakfast roundtable, hosted by Ethical Performance and London-based consultancy Lumina, an invited group of senior finance industry CSR professionals discussed the ethical issues facing their brands. Chatham House rules applied and none of their quotes are attributed. Reporter: Nick Spencer
Members of the financial sector might have been grateful this summer when G4S – non-suppliers, as it transpired, of thousands of staff for the London 2012 Olympic Games – briefly usurped them as Public Enemy Number One. In an era of double-dip recession, no one’s stock has fallen further than that of the banker.

The terms ‘ethical’ and ‘banker’ are heard together about as often as ‘Boris’ and ‘hairbrush’, but do the dire headlines reflect an uncaring financial sector or do they mask a more positive reality? There are arguments on both sides, but while the headlines are full of Libor interest rate-fixing and Payment Protection Insurance (PPI) mis-selling, there is only likely to be one winner in the public’s perception.

When a group of former Oxford University students gatecrashed an awards ceremony at London’s Sheraton Hotel in October and tried to give Barclays a fake award for ‘Innovation in Interest Rate Manipulation’ over the Libor scandal, the film was watched by thousands on YouTube.

Those at the sharp end point to confusion over government policies on investment, but there is evidence that, while the role of CSR within the financial services sector is not always clearly defined, the sector is raising its game, albeit slowly.

CSR and banking
A good starting point is whether CSR is taken seriously in the financial sector. One head of communications at an internet bank said: “Historically, CSR has been seen, to an extent, as philanthropy – energy saving and recycling – but we are starting to see many more initiatives where financial institutions are taking responsibility for what the money does and the consequences of what we do.”

A CSR manager said the degree of influence varied and depended on whether they exerted real influence, at board level, or were “stuck in a broom cupboard.”
A sustainability consultant agreed that the financial sector was lagging behind. “The retail sector has been so competitive with itself about CSR and that has really spurred them on. I think finance is at least five to 10 years behind.”

However, several examples were cited by the bankers present of a more enlightened attitude among banks: a section at Standard Chartered with the power to refuse lending on ethical grounds; better consultation with NGOs; and a variation on the principle of an offset mortgage to help fund building work for charities. In defence of the sector, one banker said that the exploitation of workers in fashion was an easy issue for public to grasp but, by its very nature, money moved very quickly in a way that is much more difficult to understand.

Public perceptions
In a popularity stake, bankers might just pip politicians, estate agents and journalists for last place, but a pharmaceuticals expert said that was understandable.

“The banking sector in this part of the world is in the doldrums because it has clearly overstepped what is perceived as acceptable boundaries. There is so much [CSR] happening at the margins but this will become more interesting when it finally becomes core business – for example, in micro finance – but who knows precisely how.”

However, a CSR and campaigns manager warned that “without profit there would be no CSR”. She cited an example at her own company, which consults health charities for advice on underwriting policies, which both improved the products and helped to reduce the burden on the state. “We find those links are making our business better and making us money.”

A CSR consultant agreed that CSR need not be a drag on the bottom line: “People talk about CSR being a cost burden, but it mustn’t be. If it is, you are doing something wrong. There are lots of indices showing that sustainable industries far outstrip the FTSE 500 on shareholder returns. The figures are there and that needs to be the first message when talking to senior people about why CSR should be integrated into the business.”

One of the bankers present held up the Equator principles, to which 77 banks are signatories, as “a fabulous bit of work”. In essence, banks work together to avoid funding damaging infrastructure projects. “I don’t think the general press know what the term is but it is one of the most significant steps forward in banks operating ethically.’’

Mending a debt-laden society
Graduates are now leaving university with debts of £30,000-plus before they have secured their first job, while financial literacy in schools is alarmingly bad.

Mentoring is one successful way in which financial companies have intervened in education directly, while one CSR manager working in the City of London urged more support for the School Governors One-Stop Shop project, funded by the government, which finds employees to be governors. Thus far, only 2,000 out of 22,000 schools had joined the scheme.

The message that banks must do more, even if only out of enlightened self-interest, is obvious. “The harsh business reality is that if the next generation of customers is not coming to the banks, then they have no opportunity to make money out of them,” said one.

There was also a dire warning that banks were way behind on social networking. “We don’t have apps. Kids are out and about and we can’t get in touch with them because we are not in that sort of world. We are so far behind.

“It is also about educating people that they go to the right places and not places like Wonga where they are charged huge amounts. They don’t understand that they are paying double the interest. But Santander are investing in unsecured loan companies and actually looking at being ethical and talking to these guys as consultants. It is a very interesting area.”

Social investment
Bankers complain of conflicting pressures, particularly over social investment, which has been held up as a tool to help lift the country out of recession. But social enterprise programmes carry a higher burden of risk, and there’s the rub.

According to one head of communications, banks face a conundrum. “The banking sector is under pressure to reduce balance sheets, which makes it more difficult to take risks – and new and untested businesses, of course, are higher risk. Your balance sheet becomes more risky and we are under regulatory pressure to reduce risks. So everything is working against the banking industry lending more.”

Perhaps, it was suggested, more government assistance is required to break the impasse. He continued: “There a lot of political pressure to support small businesses but the regulator – which is also the politicians, essentially – is saying, ‘Look, we need you to lend less’.

“It’s not a problem banks can solve alone. Which is why in social investment schemes, which have an element of government underwriting, banks can do a little bit more. First and foremost, every banker will ask ‘am I going to get the money back?’ In the credit crunch, that’s what stopped him [lending].”

The subject of embedding CSR in financial businesses also stimulated some lively debate as to whether banks were really looking beyond maximising profits and had a real interest in improving lives.

A financial writer said: “Barclays makes a lot of money from the food commodity markets. They have been facing flak on a number of levels and they are accused of raising food prices, so that those at the bottom of the economic ladder are now struggling to feed themselves around the world.” It was suggested that maybe more confrontation from shareholders was needed to air these important issues.

A finance and pharmaceuticals expert said: “Pressure comes from society and it sees different things happening in different parts of the world these days at a speed which is unbelievable, and you have more empathy to suffering people in the developing world.” He concluded: “All organisations are reassessing their values.”

However, one banker did have a good word for a beleaguered rival. “Barclays’ environmental risk programmes put them at the top of the sector but, if you talk to a member of the public about Barclays, they will say ‘Libor scandal’ – that’s all they see right now.”

‘String ‘em up!’
At a time when the FSA is cracking down on finance ?rms’ sales bonus schemes, following a year-long study which found that 20 out of 22 companies used schemes which “were likely to drive staff to mis-sell in order to meet targets and receive a bonus”, the financial sector is struggling to convey a positive message.

If the case for better communications is unanswerable, there was an amusing swipe at the failings of banks to regulate themselves by the head of corporate affairs at a risk adviser: “Communications is a means to an end. Frequently, companies don’t know what their end is – they haven’t got their policy sorted out. HSBC has such sloppy systems that they are laundering £5bn of drug money and they are not tracking that they are doing it. You can communicate ’til the cows come home. If you haven’t got the necessary programmes in place, it’s going to be all for naught.”

His solution? “Hold colleagues to account. We don’t string up enough [people for] malfeasant behaviour. The best thing you can do is make an example of people who do not conform to the policies of the company.”

On a positive note, a new recruit to the banking sector showed the industry in a more positive light: “It has been the best culture I’ve worked in – [CSR is] taken so seriously,” she said. “I think it’s because it’s seen to add value, but there’s still a lot of work to do.”

The head of comms at an internet bank added: “The biggest part of communications is the listening part. The CSR people have to be driving the idea of who all the stakeholders are and what their views are and helping the organisation build a picture of how it’s impacting on everyone outside. Getting CSR right is about understanding who those audiences are. CSR people have to be driving that agenda at a senior level.”

The final word went to a former building society CSR manager who said that everyone’s fortunes were inextricably linked to the financial world.

“The rest of society is relying on the returns of the financial sector. We all have to accept, at some point, lower pension pots if we actually want the banking sector to do what we deem as a society, collectively, that we want them to do.”

CSR Breakfast is an invitation-only roundtable discussion of ethical issues. This report reflects the discussions at the second event, on the financial services industry, in October. For details, visit the CSR Breakfast LinkedIn group at www.linkedin.com